Court Decision Raises Internet Issues

A new federal court ruling leaves some doubt as to who can enforce consumer protections on search engines and other edge providers, and perhaps other parts of the economy as well.

A panel of the U.S. Court of Appeals for the Ninth Circuit ruled last week that the Federal Trade Commission was precluded from using its consumer protection authority to sue AT&T for not telling customers of its grandfathered mobile broadband “unlimited” data plans that their data use was being throttled back once it reached a certain threshold.

The Federal Communications Commission is pursuing a similar complaint against AT&T, which is not affected by the ruling.

But the decision has wider implications. In fact, the FTC said that as a result of the ruling it would be “virtually powerless to protect the public against newly emerging harms that reach into virtually every area of commerce.”

The decision could immunize the non-common carrier holdings of broadband common carriers like AT&T and Verizon—or Google Fiber—from Federal Trade Commission consumer protection regs. And if those holdings were edge providers such as Yahoo, that would mean the FCC could not regulate them either, since chairman Tom Wheeler says the commission lacks authority to regulate such providers.

AT&T had said that since it is classified as a common carrier, and the FTC is exempt from pursuing false and deceptive claims against common carriers, that meant that its non-common carrier mobile broadband business also fell under the exemption.

That was billed as the “status” definition of the exemption.

The FTC argues that the exemption does not apply to non-common carrier activities by common carriers, in this case mobile broadband (this was before the FCC classified mobile as a common carrier service in its Open Internet order).

That was called the “activities” definition.

The FTC warned that if the court ruled that the common carrier exemption applied to all a company’s activities, as a common carrier and non-common carrier, it “would undermine the purposes of the FTC Act by leaving consumers unprotected in major areas of the economy.”

The FCC assumed regulation of broadband privacy when it reclassified ISPs as common carriers last year. But the agency has yet to come up with new rules.

In the interim, the FCC and FTC entered into a memorandum of understanding to divvy up oversight, assuming that “the scope of the common carrier exemption in the FTC Act does not preclude the FTC from addressing non-common carrier activity engaged in by common carriers.”

The Ninth Circuit says it does preclude the FTC from addressing them. The FTC says that leaves a big gap in consumer protections.

“AT&T engages in a wide range of activities, only some of them common carriage,” the FTC had told the court. “In addition to mobile voice and data service, [AT&T] sells consumer goods and services such as smartphones, tablet computers, digital video recorders, GPS devices, fitness trackers, cell-phone accessories, home automation and security systems.”

The FTC says AT&T’s reading, and now the Ninth Circuit’s, would leave those and other services unprotected.

Beyond that, it could provide a strategy for immunizing companies from FTC enforcement “simply by providing some common-carrier service.”

So does that mean the search engine business of a Google, because it provides a common carrier service—Google Fiber—could be immunized from privacy regs and consumer protections?

The FTC seems to think that is definitely in play now that the FCC has reclassified ISPs as common carriers. “[A] broad range of companies that do not provide traditional common-carrier service will now be able to claim common carrier status,” the FTC told the court, adding: “[E]merging broadband providers such as Google…may collect vast amounts of consumer data with the corresponding possibility of harming privacy interests.”

Communications analyst Paul Gallant agrees: “This is clearly a broad and encouraging implication for Google that would seemingly enable other companies like Facebook, Amazon and Netflix to acquire a small broadband provider simply to escape all FTC privacy regulation,” Gallant, of Cowen Washington Research Group, said last week in a note to clients.

The FTC said in a statement: “We are disappointed with the ruling and are considering our options for moving forward.”

An FCC spokesperson had no comment, saying the agency’s attorneys were still vetting the decision at press time.

A new federal court ruling leaves some doubt as to who can enforce consumer protections on search engines and other edge providers, and perhaps other parts of the economy as well.

A panel of the U.S. Court of Appeals for the Ninth Circuit ruled last week that the Federal Trade Commission was precluded from using its consumer protection authority to sue AT&T for not telling customers of its grandfathered mobile broadband “unlimited” data plans that their data use was being throttled back once it reached a certain threshold.Subscribe for full article